S.F. gives unwarranted tax break to developers

Updated 11:53 pm, Sunday, September 21, 2014

Photo: Michael Macor, The Chronicle

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Former San Francisco Mayor Willie Brown, during a commissioner swearing in ceremony at City Hall, on Thursday August 30, 2012, in San Francisco, Calif. A look at the people who have outside influence on San Francisco Mayor Ed Lee. less

Former San Francisco Mayor Willie Brown, during a commissioner swearing in ceremony at City Hall, on Thursday August 30, 2012, in San Francisco, Calif. A look at the people who have outside influence on San ... more

Photo: Michael Macor, The Chronicle

S.F. gives unwarranted tax break to developers

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San Francisco’s political leadership is about to give a tremendous gift to the high-rise developers who are building around the new Transbay Transit Center.

Why?

The deal is baffling — and infuriating. The group of developers had already gotten special favors from City Hall — including the right to increase the height and density of their massive projects. In exchange for such largesse, said developers agreed to pay a rate of 0.55 percent into a special property tax district, known as a Mello-Roos, in order to pay for public improvements to the area. The developers agreed to all of this two years ago.

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Two years on, property values around the area have gone through the roof — increasing the amount of money that the developers owed to the city. Instead of accepting that a deal is a deal, the developers hired former mayor (and Chronicle columnist) Willie Brown as a lobbyist and threatened the city with a lawsuit.

The city caved.

The original agreement was to have the developers paying a rate of 0.55 percent of the entire project’s assessed value into the Mello-Roos district for 30 years. Under the new agreement — which awaits Board of Supervisors’ approval —the developers would have 37 years to pay instead.

The extra time matters, because of the concept of “net present value.” That means, basically, that the dollar you earn today is worth more than the dollar you’re going to earn in the future.

The figures that have been widely reported for the Transbay deal is that the city would have collected up to $1.4 billion over the course of 30 years for the Mello-Roos special district. (This is presuming the new, increased, property values.) If the time period for collection is extended from 30 to 37 years, the net present value of $1.4 billion is reduced by tens of millions. That’s a huge giveaway.

The city’s public finance department noted that the exact amount that could be collected depends on when the properties are assessed, though director of development Ken Rich admitted that the city will get less money every year under the compromise.

The city’s sacrifice of precious tax revenue might be reasonable if there was a sound rationale for it. There isn’t. When pressed for details about why he agreed to the compromise, Mayor Ed Lee said he was concerned about the possibility of an expensive lawsuit.

Since when has litigation been a deterrent to principle at City Hall? The city fights expensive lawsuits all the time. In this case, no lawsuit was even filed. No doubt that’s because it’s unlikely that the developers could have won a lawsuit anyway.

As City Attorney Dennis Herrera told us, “From our perspective, what was negotiated was legally enforceable.”

Of course it was. Do regular homeowners win lawsuits protesting their property taxes? Do small businesses?

So why should big developers get their way based on empty threats? The notion that they need tax relief because their property values are skyrocketing is just plain offensive.

With cost overruns to the transit center project threatening its promised rooftop park, the city needs every tax dollar it’s owed for public improvements.